[ad_1] Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, shares financial headlines and offers context for Canadian investors. The inflation mountain: What the descent may look like It’s looking more and more like the 8.1% annualized inflation reading from June 2022 was the peak of post-pandemic price increases. On Tuesday, Statistics Canada reported that Canada’s inflation rate cooled to 7% in August. Experts had been predicting a slight decrease to 7.3% (continuing the downward trend established by the decrease to 7.6% in July). The lower-inflation news was welcomed by several economists as proof that contractionary monetary policy by the Bank of Canada (BoC)was achieving its goal, and that the worst-case scenario of massive interest rate increases were now unlikely to be required. The significant drop in inflation was quite unexpected after last week’s 0.1% CPI increase in the U.S. Here are the major takeaways from Canada’s Consumer Price Index (CPI) report for August: Gasoline prices fell 9.6% and were the main catalyst for the lower overall numbers. Shelter and transportation costs were also down. Durable goods inflation rates were still high at 9%, but that’s down from 11.5% in July. Look for reduced demand and bulging inventories to bring this number down quickly going forward. Core CPI, which seeks to strip out the more volatile elements of CPI, was down to 5.2% from 5.4% in July. Grocery prices, however, continue to escalate and are up 10.8% from a year ago. Source: CBC News While hourly Canadian wages have increased by 5.4% over the past year, you don’t have to be a math whiz to note that the average pay cheque isn’t going to go as far as it did last summer. Many investors are likely hoping this encouraging inflation data allows Canada’s central bank to show patience and restraint when it comes to interest rate raises. Generally speaking, the lower that the eventual peak interest rate is capped—and the more quickly we arrive at that point—the sooner riskier investments like equities are likely to continue their long-term climb upwards. Meanwhile, the U.S. Federal Reserve announced on Wednesday that as anticipated, it would be hiking interest rates by three-quarters of a percentage point to the 3.00%-to-3.25% range. The news continued to accelerate the downward momentum in market prices, as the main U.S. indices finished the day down about 1.7% after being up prior to the Fed’s announcement. Can the loonie remain afloat? One of the spin-off effects of Canada’s disinflationary momentum is that it has lowered the worth of our currency when compared to the U.S. dollar. There are a few reasons for why this is the case, but most of the movement can be chalked up to expectations for future demand for the Canadian dollar, based on how high we are forced to raise interest rates. The higher we are forecasted to raise rates, the more incentive there will be to hold onto Canadian dollars. As you can see from the chart below, the markets are now anticipating the U.S. central bank will face more pressure to raise interest rates going forward than the BoC. Source: Google Finance While the Canadian dollar had a rough year, when compared to the U.S. dollar, it’s important to remember it has actually performed pretty well versus most of the other leading currencies in the world. Here’s how the loonie has fared versus the euro, Japanese yen, Chinese renminbi and British pound: Source: Google Finance Source: Google Finance Source: Google Finance Source: Google Finance Here are four of my takeaways in regards to the worth of the loonie at the moment: What a great time to take that trip to Europe or Japan! The lower value versus the U.S. dollar is going to sting in certain areas when it comes to inflation. After all, roughly 50% of our imports are from the U.S. Specifically, we might feel the pinch in high-import areas, like vehicles and machinery. We export a ton of stuff to the U.S.—over 70% of all our exports! The lower Canadian dollar should actually help many of our export-heavy industries, and should be a net positive for the Canadian markets. Our days as a “petrocurrency” might be behind us to some degree. While our dollar has done pretty well this year, it hasn’t responded to oil price movements to nearly the same degree as it did seven-plus years ago. Note to shareholders: Don’t relax, it’s FedEx In earnings news, it was mostly quiet on the Canadian front. FedEx, on the other hand, may wish things were quieter. Going back to Friday, September 16, FedEx (FDX/NYSE) announced some bad news ahead of its earnings call this week. And share prices subsequently collapsed to the tune of a 21% decrease. CEO Raj Subramaniam made headlines by telling CNBC’s Jim Cramer that he expected a worldwide recession given what FedEx’s bottom line looked like. Notably, UPS and DHL didn’t have nearly the same apocalyptic view on things in their recent investor communications, so it’s quite possible that it’s just a well-compensated CEO looking to scapegoat poor performance on macroeconomic economic conditions. On Thursday, FedEx announced USD$2.7 billion in cost cuts and the shares rose slightly on the news. Earnings per share fell 21.3% (roughly in line with what the company had warned about last week) even though revenues were up about 5.5%. Because of their guidance update last week, analyst predictions were quite accurate. General Mills (GIS/NYSE) put out a more upbeat earnings call, as the food conglomerate posted an earnings per share beat of USD$1.11 (versus $0.99 predicted). With shares up nearly 6% on the day, and 11% YTD, the experts who advocated playing it safe with consumer staples are looking pretty smart on this one. Despite Costco’s (COST/NASDAQ) earnings and revenue beat, the stock was down about 3% in after hours trading. This simply appears to be the result of very bearish sentiment when it comes to retailers at the moment. With earnings per share coming
